Archive for the ‘Competition’ Category

In the early 1980s, Ms. Bobby Graham (now of Wagga Wagga NSW) was working for a prestigious Afrikaans general book publisher in Capetown. Her company and mine recently collaborated on inputs to a federally-sponsored development agenda for the printing/publishing industry. A great insight:

We were approached by a Singaporean printer, and I remember my boss inviting me to join in the initial meeting when the representative paid us a visit. Living and working at the southernmost tip of Africa you can appreciate that we were rather surprised by this overture and approach.This was the first of various Singaporean print representatives who called on us over a period of most probably ten years. What struck me most was the following:

Unlike local printers, all the representatives were well spoken, well educated and well travelled business graduates. They never pushed a hard sell approach, but always enquired about ourselves, our families, our work situation.

They openly discussed their attempts to get work from our competitors. They were extremely good at following up after all visits even if we didn’t give them anything on which to quote. You could be certain of a follow-up phone call (from Singapore) – and if we did request a quote, this was faxed (pre-email) within days (as opposed to weeks sometimes from local printers).

They persisted in developing a relationship, even if sometimes it might take a year or two before they got a print job. We didn’t print enough full-colour books to warrant printing offshore in large numbers, but when we eventually were able to take up their offers, we were delighted with the quality and service. Deadlines were always met and kept (we made very sure that we presented our jobs exceptionally well to avoid any costly long-distance changes).

When I visited them in Singapore, they were all extremely hospitable and went out of their way to ensure I was collected from the airport, delivered to my hotel, fetched to visit the factory and guided throughout all operations. At all the printers, but especially at Tien Wah, I was impressed by the efficient flow of the work stations moving as they did from the office staff (estimators) through pre-press, to print, binding and finishing before being despatched directly into waiting containers. The different department staff wore different coloured T-shirts. This increased their team spirit, but also quickly identified those workers who were out of place. Each individual work station had a target chart, clearly visible to co-workers and visitors and these were translated into wall-mounted charts for each division.

Obviously it was very clear what their targets were – 90% of their work was for offshore clients.

Collaboration is increasingly international. Collaboration is fundamental to innovative solutions in a complex world. But government agencies toss the word around with gay abandon, and the continuing silo mentality exposes their own rhetoric.

Governments simply MUST spend time more understanding how collaboration can be nurtured. A healthy collaborative environment can be built, just like you can an investment environment.

These and related issues were explored a couple of years back by Donald Beaver, of Williams College, Massachusetts – Reflections on scientific collaboration (and its study): past, present and future, (Scientometrics, Vol. 52, No. 3).

Beaver says that collaboration offers many benefits – speed, power and efficiency of research; breadth and synergy of projects; reduced risk of ventures; and feedback, dissemination, and visibility of results.

His article reviews past research and seeks to understand present thinking about collaboration, and speculates about the future, focusing on technologies like email and the Internet.

Beaver argues that scientific collaboration was a relatively rare event until World War I, after which it grew at a much more rapid rate. Two facts of interest were apparent early – a collaborative first paper meant above average productivity later, and elite scientific journals published disproportionately more collaborative papers than did less prestigious journals. They still do. Today over 90 percent of papers in some journals are collaborative.

However his broader point is specially important – that as globalization and internationalization continue, emphasis on cooperation becomes an increasingly common counterpoint to the current emphasis on competition and individuality.

Globalization is leading to a greater geographical diversity of collaborators – whether they are individuals, laboratories, or institutes. Physical location is no longer a barrier to the free and easy exchange of information. And the advent of email had already begun to increase diversity in geographical locations. (I am in Canberra. Where are you?)

We believe it is critically important for governments to get a better grip on the factor conditions for collaboration. It is a key to good policymaking in many fields. It cannot be left to the private sector, where competition is God.

Earlier this year, Sandy K. Baruah, head of the Economic Development Administration in the USA wrote an article titled “The Five New Realities of Economic Development in the 21st Century”.

Sandy authored the article because he says he’s in the ‘what’s next’ business.

His five realities are:

1. We are in a global economy, where competition comes from anyone (any corner of the globe) with a good education, a good idea and a good Internet connection (take note regional Australia).

2. The pace of change will accelerate – innovation is becoming multidisciplinary as different technologies converge, creating fields that didn’t even exist just a few decades ago.

3. Components of competitiveness cannot be pursued separately. This means that separate silos in workforce, social and community, economic development etc. can no longer be tolerated.

4. The private sector is the most important element of any successful economic development strategy. Unless the private sector is ready, willing and able to invest, growth will not occur, regardless of how much government spends.

5. The ability to innovate is the only sustainable competitive advantage of a nation, region or company.

Well, you can’t fault his logic, and our economic development adviser in the USA, David Dodd, speaks very highly of him.

We are THE experts in international networking
– for more information, contact us at apd@orac.net.au or ring 61-2-62317261

Hugh Forde, the former director of the cluster program at Business SA has vast experience in working with companies to deliver collaborative outcomes. Below is some of his thinking which sheds light on how collaboration can facilitate international competitiveness.

It has been observed that an over-emphasis in South Australia on content is inhibiting the significant influence that context can have on a firm or institution’s international competitiveness.

This is especially so as it pertains to firms working with each other and in relating to public researchers, business services providers, government departments and universities.

I define content as the products, services, markets, business systems and the knowledge, technical and technology bases indigenous to the firm and upon which it seeks to develop its market competitiveness.

The observation about South Australia is supported by my tacit experience in working with industry clusters over the past ten years. The challenge in getting firms to work together is impeded by a misunderstanding that a firm’s competitiveness, as defined above, is somehow compromised by working with others.

I suspect it is an international phenomenon and therefore expanding on the observation and how I am addressing it in South Australia may be of some interest.My experience is that emphasis on content becomes a behaviour characteristic that constrains:§individuals in managing their careers;§firms in adapting and responding in a timely manner to market trends and social change;§industries in collaborating to compete and innovate.

Why? Emphasis on content narrows perspective. It constrains firms to operate within the traditional firm based competitive paradigm. As such it is a barrier to creativity and true innovation which occurs best in a collaborative externally focussed environment. It tends to focus strategic thinking and planning on internal operations. It limits thinking on creating a wider perspective that would encourage a more external and open approach to business development.

On the other hand the ‘Collaborating to Compete and Innovate’ paradigm is by its nature driven by context. Clustering and collaboration is precisely concerned with changing firms and organisations perspective from firm base content to industry wide and global context.

There is no conflict or compromising – only the challenge to include ‘collaboration’ as a pillar concept in the firm’s approach to business. This means building collaborative strategies into business planning and budgeting resources to initiate and manage the collaborative strategy.

The value of thinking more about context and less about content is evidenced by a survey of successful CEOs in the USA. The survey found that an ‘appreciation of context’ was the most common attribute of successful CEOs and of those CEOs who successfully transferred to other industries or firms.

There is an evangelical belief that if many companies and individuals are put into direct competition, the outcome is creative tension, a stronger work ethic and lower prices.

But strong competition between a myriad of players does not necessarily deliver efficient resource allocation. A mass of strongly competing, ‘efficient’ providers of goods and services in any market – the so-called ‘market equilibrium’ – is a rare and unstable circumstance.The reality is that oligopolistic market structures – where a few large suppliers dominate – are now the norm.

In small economies, unfettered capitalism leads to the concentration of market power in a handful of companies, and oligopolies develop as a matter of course. In Australia, two Woolworths and Coles account for 80% of the Australian supermarket business.

In markets where governments are influential, the stronger private sector players generally have the lobbying clout to further entrench their oligoplistic market power e.g. Halliburton, News Corporation.

Given these developments, it is incumbent on governments of all persuasions to be much better informed of the implications of their actions. Government grants to companies, and policy changes that favour one company over another, can have profound long-term effects on the operation of markets. However the ability of governments to properly understand the consequences of their actions is limited.

To be fair, governments are progressively introducing the concept of ‘competitive neutrality’ in respect of grants programs, to avoid or at least limit the adverse impacts on other companies. However this concept has not yet permeated into the realm of major government policy changes. The problem is privately acknowledged within government circles in Australia, with the most recent examples being the Optus telecommunications deal and uncertainty surrounding mandatory environmental targets.

There are incredibly complex issues where commercial practices and public policies converge. No government can be expected to fully understand all the competitive dynamics of an industry, and how its action will affect the competitive position of the different players as well as the overall industry settings.

But governments must make a greater effort to commission expert studies on market structures and performance, and better explain the rationale of its actions when it does intervene. Vigilance in terms of anti-competitive behaviour is also critically important.

Why do some groups of individuals, organisations and countries succeed in promoting cooperation while others suffer from conflict?

This is a key question embedded in many cluster programs.Well, Robert Aumann and Thomas Schelling have just won the Nobel Prize for work in this field. It’s based on game theory – or interactive decision theory – as the dominant approach to this age-old question.

The title of their work is ‘Conflict and cooperation through the lens of game theory’. Schelling’s work began against the backdrop of the nuclear arms race in the late 1950s. His book The Strategy of Conflict set forth his vision of game theory as a unifying framework for the social sciences. Schelling showed that a party can strengthen its position by overtly worsening its own options, that the capability to retaliate can be more useful than the ability to resist an attack, and that uncertain retaliation is more credible and more efficient than certain retaliation. These insights have proven to be of great relevance for conflict resolution and efforts to avoid war.

His work prompted new developments in game theory and accelerated its use and application throughout the social sciences. Notably, his analysis of strategic commitments has explained a wide range of phenomena, from the competitive strategies of firms to the delegation of political decision power.

Robert Aumann’s angle is that in many real-world situations, cooperation may be easier to sustain in a long-term relationship than in a single encounter. Analyses of short-run games are, thus, often too restrictive. He was the first to conduct a full-fledged formal analysis of so-called infinitely repeated games. His research identified exactly what outcomes can be upheld over time in long-run relations. The theory of repeated games enhances our understanding of the prerequisites for cooperation – why it’s more difficult when there are many participants, when they interact infrequently, when interaction is likely to be broken off, when the time horizon is short, or when other’s actions cannot be clearly observed.

For many, the word ‘innovation’ is synonymous with technology and California’s Bay Area, which is loaded with research institutions, human capital and entrepreneurial assets.

A 2006 report takes a look at innovation initiatives in that area and around the world, asking the question, “Are we linked to other economies by cooperation as well as competition?”

The report ‘The Innovation Edge: Meeting the Global Competitive Challenge’ is a collection of essays on the economic challenges brought on by the emergence of China, India etc. It includes pieces on “The Emerging Global Labor Market,” and “Services Innovation as a Competitive Response to Globalization.”

A colleague within the Department of Defence (Canberra) has forward a cautionary tale for consultants within the Cockatoo network.

When Bob found out he was going to inherit a fortune when his sickly father died, he decided he needed a woman to enjoy it with.So, one evening he went to a singles bar, where he spotted the most beautiful woman he had ever seen. Her natural beauty took his breath away. “I may look like just an ordinary man,” he said as he walked up to her, “but in just a week or two, my father will die, and I’ll inherit 20 million dollars.”

Impressed, the woman went home with him that evening and, three days later, she became his stepmother.

From time to time I have commented on China as the workshop of the world and a growing partner for global collaboration. Recently I heard a talk by Professor Jonathan West, an Australian who is currently a professor at Harvard Business School and is about to establish a Centre for Innovation at the University of Tasmania, connected with the University of Melbourne.

In the talk Professor West said that many people in countries, such as Australia, have seen the developments in China as a market of 1.3 billion new consumers keen to buy imported products. However, the key to China’s growth is not cheap unskilled labour, it is cheap skilled labour, says Professor West.

He indicates that China is currently graduating 500,000 engineers every year and this number is increasing. He says: “An engineer that would be paid $150,000 a year in the United States earns $120 to $150 a month in China…China has a cost-structural advantage that is so great it is difficult to think of any product that can be made and transported that China won’t have a structural competitive advantage in. So what we are seeing is not just that China is emerging as a great new market, but it’s emerging as a great new competitor in a wide range of products that are taking us by surprise.”

He goes on to consider the garlic, the wine and the vegetable industries in China and Australia. He says the Australian garlic industry is facing disaster because Chinese garlic is going into Australia at one-tenth the cost of the Australian product.

From a late start, China now has more area under grapevine than Australia with wine makers (after studying in Australia and elsewhere) producing excellent wine – and Australia annually sells just over half a million dollars of vegetables to China, while importing over $40 million.He concluded that as we look forward to the future, nations like Australia must make investments in their industrial capability and expertise to be able to compete with China, as well as sell to it. As he has indicated, the challenge is massive, much larger than many people have recognised.

SGS’ latest newsletter points us to an interesting review by Professor Mike Berry (RMIT) of the determinants of regional economic success – titled ‘Innovation by Design: The Economic Drivers of Dynamic Regions.

His analysis of the two approaches – the neoclassical school, and the new growth theory school – is timely because they represent the basic policy camps here in Canberra.

Berry says the neo-classicists see innovation as an exogenous (given) factor – material welfare is achieved through the promotion of perfect competition, with firms responding to prices. Competition is driven by the law of diminishing returns to scale. Policy prescriptions in this view of the world tend to be preoccupied with micro-economic reform – including removing barriers to entry, improving consumer knowledge, eschewing proactive industry policy, confining government interventions to the correction of price signals for externalities e.g. public research.

By contrast, new growth theory (NGT) says innovation is an endogenous factor, with firms forging a continuing market advantage by being the first to create a compelling new product. This school of economists argues that direct policies are needed to help firms innovate and exploit the opportunities created by imperfect knowledge on both the demand and supply side of the market. These policies focus on skills development, promotion of sectors, competencies or industry clusters where there is a reasonable prospect of increasing returns to scale for the region or nation.

So what, you say? Well, it amazing that the neo-classicists still hold sway here. They are invariably the bureaucrats and advisers who lack real world experience. If they had, they would understand how NGT must be the basis for lifting our trade performance in high value manufactures. FTAs with the USA and China are very risky without a strong industry policy aimed at building strategic industry competencies and global supply chains.